Kan. Admin. Regs. § 81-3-5 - Sales of securities at financial institutions
Current through Register Vol. 40, No. 39, September 30, 2021
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81-3-5. Sales of securities at financial institutions. (a) Definitions. For purposes of this regulation, the following definitions shall apply:
(1) "Affiliate" means a company that controls, is controlled by, or is under common control with a broker-dealer as defined in FINRA rule 5121, which is adopted by reference in K.A.R. 81-2-1.
(2) "Broker-dealer services" means the investment banking or securities business that is conducted by a broker-dealer or a municipal or government securities broker or dealer other than a financial institution or department or division of a financial institution and consists of any of the following:
(A) Underwriting or distributing issues of securities;
(B) purchasing securities and offering the securities for sale as a dealer; or
(C) purchasing and selling securities upon the order and for the account of others.
(3) "Financial institution" means any federal-chartered or state-chartered bank, savings and loan association, savings bank, credit union, and any service corporation of these institutions located in Kansas.
(4) "Networking arrangement" and "brokerage affiliate arrangement" mean a contractual or other arrangement between a broker-dealer and a financial institution pursuant to which the broker-dealer conducts broker-dealer services on the premises of the financial institution where retail deposits are taken.
(b) Applicability. This regulation shall apply exclusively to broker-dealer services conducted by any broker-dealer on the premises of a financial institution where retail de posits are taken. This regulation shall not alter or abrogate a broker-dealer's obligations to comply with other applicable laws or regulations that may govern the operations of broker-dealers and their agents, including supervisory obligations. This regulation shall not apply to broker-dealer services provided to nonretail customers.
(c) Standards for broker-dealer conduct. No broker-dealer shall conduct broker-dealer services on the premises of a financial institution where retail deposits are taken unless the broker-dealer complies initially and continuously with the following requirements:
(1) Setting. Broker-dealer services shall be conducted in a physical location distinct from the area in which the financial institution's retail deposits are taken. In all situations, the broker-dealer shall identify its services in a manner that clearly distinguishes those services from the financial institution's retail deposit-taking activities. The broker-dealer's name shall be clearly displayed in the area in which the broker-dealer conducts its broker-dealer services.
(2) Networking and brokerage affiliate arrangements and program management. Networking and brokerage affiliate arrangements shall be governed by a written agreement that sets forth the responsibilities of the parties and the compensation arrangements. Networking and brokerage affiliate arrangements shall stipulate that supervisory personnel of the broker-dealer and representatives of state securities authorities, where authorized by state law, will be permitted access to the financial institution's premises where the broker-dealer conducts broker-dealer services in order to inspect the books and records and other relevant information maintained by the broker-dealer with respect to its broker-dealer services. The broker-dealer shall be responsible for ensuring that the networking and brokerage affiliate arrangement clearly outlines the duties and responsibilities of all parties.
(3) Customer disclosure and written acknowledgment.
(A) When or before a customer's securities brokerage account is opened by a broker-dealer on the premises of a financial institution where retail deposits are taken, the broker-dealer shall perform the following:
(i) Disclose, orally and in writing, that the securities products purchased or sold in a transaction with the broker-dealer are not insured by the federal deposit insurance corporation ("FDIC") or the national credit union share insurance fund ("NCUSIF"), as applicable, are not deposits or other obligations of the financial institution and are not guaranteed by the financial institution, and are subject to investment risks, including possible loss of the principal invested; and
(ii) make reasonable efforts to obtain from each customer during the account opening process a written acknowledgment of the disclosures required by paragraph (c)(3)(A)(i).
(B) If broker-dealer services include any written or oral representations concerning insurance coverage other than FDIC or NCUSIF insurance coverage, then clear and accurate written or oral explanations of the coverage shall also be provided to the customers when these representations are first made.
(4) Communications with the public.
(A) All of the broker-dealer's written confirmations and account statements shall indicate clearly that the broker-dealer services are provided by the broker-dealer.
(B) Recommendations by a broker-dealer concerning nondeposit investment products with a name similar to that of the financial institution shall occur only pursuant to a sales program designed to minimize the risk of customer confusion.
(C) Advertisements and sales literature.
(i) Advertisements and sales literature that announce the location of a financial institution where broker-dealer services are provided by the broker-dealer, or that are distributed by the broker-dealer on the premises of a financial institution, shall disclose that the securities products are not insured by the FDIC or the NCUSIF, as applicable, are not deposits or other obligations of the financial institution and are not guaranteed by the financial institution, and are subject to investment risks, including possible loss of the principal invested.
(ii) To comply with the requirements of paragraph (c) (4)(C)(i), the following logo format disclosures may be used by a broker-dealer in advertisements and sales literature, including material published or designed for use in radio or television broadcasts, internet sites, automated teller machine screens, billboards, signs, posters, and brochures, if these disclosures, as applicable, are displayed in a conspicuous manner: "not FDIC insured," "no bank guarantee," "not NCUSIF insured," "no credit union guarantee," and "may lose value."
(iii) If the omission of the disclosures required by paragraph (c)(4)(C)(i) would not cause the advertisement or sales literature to be misleading in light of the context in which the material is presented, the disclosures shall not be required with respect to messages contained in radio broadcasts of 30 seconds or less; signs, including banners and posters, when used only as location indicators; and electronic signs, including billboard-type signs that are electronic, time and temperature signs, and ticker tape signs. However, the requirements of paragraph (c)(4)(C) (i) shall apply to messages contained in other media, including television, online computer services, and auto mated teller machines.
(5) Notification of termination. The broker-dealer shall promptly notify the financial institution if any agent of the broker-dealer who is employed by the financial institution is terminated for cause by the broker-dealer.
(d) "Dishonest or unethical practices," as used in K.S.A. 17-12a412(d)(13) and amendments thereto, shall include any conduct that violates subsection (c). (Authorized by K.S.A. 17-12a605(a); implementing K.S.A. 17-12a412; effective Oct. 26, 2001; amended Aug. 18, 2006; amended Jan. 4, 2016.)